d/b/a Pacific Energy Development
(NYSE MKT: PED)
Executive Chairman, President, and CEO: Frank Ingriselli
About: PEDEVCO Corp. (dba Pacific Energy Development Corp.) (NYSE MKT: PED) is a publicly listed, energy company engaging in the acquisition and development of strategic high-value energy projects, including shale oil and gas assets, in the United States. The Company’s principal asset is located at the D-J Basin in Weld and Morgan Counties in Colorado.
WSA: Good day from Wall Street. This is Juan Costello, Senior Analyst with the Wall Street Analyzer. Joining us today is Frank Ingriselli, the CEO of Pacific Energy Development Corporation otherwise known as PEDEVCO. The company trades on the New York Stock Exchange; ticker symbol is PED. Thanks for joining us today Frank.
Frank Ingriselli: Thank you Juan and I look forward to telling the story about some exciting developments at Pacific Energy Development.
WSA: Sounds good. So for some of our listeners that are new to this story and didn’t catch our previous interviews can you give us a history and overview of the company?
Frank Ingriselli: Absolutely. We’ve been in existence a little over four years and during that time we have acquired different assets along the way in different basins including production assets in Eagle Ford, and assets in the Mississippian play, etc. However, over the last year plus, we’ve become a very focused company in the Niobrara-DJ Basin play and in particular picking up substantial assets in the Wattenberg & Wattenberg Extension of the DJ Basin play. So we are sitting there now with about 27,000 net acres in Weld County, the heart of the DJ Basin, with about 53 gross wells and 14 operated wells.
We have done this over the last four plus years, first being a private company and then going public and then about two years ago moving up to the New York Stock Exchange. One thing we pride ourselves on is the management team and the technical and operating team that we’ve built in our company. Our management team has done it before, very seasoned executives, including myself with over 35 years in the oil and gas industry, a good portion of it with Texaco where I rose to become President of Texaco International Operations and many other very exciting roles at Texaco; but now my direct efforts and all my labor is going into applying what I’ve learned in the past into our company and developing our assets and driving shareholder value for the company.
Additionally, we’ve got people like Michael Peterson who is our President and CFO, who has had over a decade at Goldman Sachs and CEO experience in energy, oil and gas; and the rest of our seasoned and experienced team But what’s also driving the company is our technical and operating experts that are headquartered in Houston and did work for companies like Rosetta and Chevron and Exxon and others, but now are the ones drilling our wells, drilling them efficiently at lower costs than most other producers in the basin have done and demonstrating top results in terms of oil production coming from the wells we’ve drilled. So, we’ve built an exciting company, we’ve become focused as a player in the Niobrara – DJ Basin, and we’ve done some exciting things over the last several months to grow the company.
WSA: Great and can you bring us up the speed on some of your recent news there including the acquisition agreement that was done?
Frank Ingriselli: Sure, absolutely, as you know, it’s been a challenge over the last year in the Energy industry. During my 35 plus years in this industry, I’ve seen oil prices at Texaco go up and down and get stressed at the low levels and then get to some astronomically high levels. A company like Texaco (now Chevron), they can withstand those types of gyrations in oil prices. However, a micro-cap company like ours, seeing this dramatic drop in oil prices down into the low $40’s after we had purchased some very great acreage in the Niobrara-DJ Basin play (we basically bought all of Continental’s play there), put stress on our company and put a stress on a lot of micro-cap companies, some of them who have gone belly-up and disappeared. Well, from my career I’ve learned that those companies that take advantage of the diversity and challenges that take place in the industry and come up with some creative, non-dilutive, a creative value driving opportunities are the ones that not only survive, but thrive.
So, in February we announced some major transformational transactions and one of them and the most important one of those was our early agreements to acquire all of the assets of a company called Dome Energy. Dome Energy, is a Swedish publically traded company that has all their assets here in the United States, which are all conventional oil and gas assets. What’s also important is they have had good access to capital and have a low cost credit facility (a 3.75% bank credit facility). We entered into discussions with them and that concluded just last month when we signed our definitive acquisition agreement with Dome, whereby we will have about a 64 to 36% split between the shareholders of the companies. But what’s transformational with this acquisition is that part of what’s required at closing is to pay off the existing senior debt of our company (our very expensive 15% debt), which will significantly lower our cost of capital, provide additional drilling capital, allow for additional buyback of our common stock, and as we publicly announced, provide an estimated PV10 of our 1P reserves of $280 million. I want to stop there.
$280 million, our current market cap is about $20 million. Also we announced that we anticipate to increase our production to about 3,300 barrels of oil per day equivalent; a very transformational move and taking advantage of the benefits that Dome brings and the benefits that we bring with our 27,000 net acres and the ability for our company to begin to drill wells on our DJ Basin acreage that can support probably close to a 1,000 drilling locations. So a huge blue sky in the future to develop our company and strive and hopefully hit our strategic goal of becoming a billion dollar enterprise.
What I thought I would also mention is that today we announced that we’ve just decided to participate in seven new Wattenberg wells. In each of those wells we will have a full 25% working interest. These will be horizontal wells drilled and completed by an experienced third party operator in the Wattenberg area of Weld County in the DJ Basin. Those wells will commence drilling this month, June 2015. These are located in the same area of the three Pronghorn wells that we recently completed with Bonanza Creek, and those wells were outstanding wells, some of the best wells that our company has participated in drilling with average initial production rates of approximately 550 barrels of oil equivalent per day. But what’s unique about this deal we announced, is that it is non-dilutive and should significantly grow shareholder value because what we are doing is we are participating in the drilling these wells without having to use any capital of the company or take on any new debt in our company.
We are working on an arrangement with Dome Energy and others where they will provide the financing to drill these wells. So, these additional seven wells should provide some significant benefits to our production, cash flow, etc. for our company. We are not sitting still; we’re taking advantage of this time and the challenges in the marketplace and the energy sector to grow our company, grow shareholder value, and do it in a non-dilutive and in a capex saving way for our company. So, we are excited about that, we are excited about moving forward and closing this merger and hitting those milestones that we’ve announced, which is 3,300 barrels of oil equivalent a day and having what we already reported as a PV10 of our 1P reserves of approximately $280 million and grow this company into a billion dollar enterprise.
WSA: Great and what were the key drivers for the Q1 results that you announced last month?
Frank Ingriselli: Sure, in those results, we’ve showed how we increased 4x in terms of production and a 1.5x increase in revenues over the prior 1st quarter period, notwithstanding a dramatic drop in the price of oil.
So what we’ve demonstrated from the prior results, and the year-end results is that we keep increasing production, we keep increasing cash flow, we keep increasing revenues; we plan to continue to do that and we plan to continue to drive down costs, which we announced that we did back in February in terms of reducing overhead in the company and G&A expenses. So, we are going to do it efficiently, and now with the possible merger, with Dome it should put us in a position that we can grow the company with low cost credit facilities and develop our assets in the DJ Basin which is one of the most economically efficient plays that can deliver, at today’s oil prices, 40% rates of return. So, just imagine if we get oil prices up to $70+ again, it puts our company in an incredible position to grow shareholder value.
Juan Costello: What are some of the other key factors, Frank that you feel make PED unique from some of the other players in the sector?
Frank Ingriselli: Sure, good question. We’ve demonstrated from the wells we drilled that we can drill and complete them at a cost that is as low or lower cost than any other competitor. So, we are as good an operator as some of the medium sized companies and even the majors in terms of our drilling and completions. We have drilled cheaply and effectively with very good production rates. What you’re getting is a company that has over 1,000 well locations; 27,000 net acres in one of the best locations in the industry. What you also have is a company that has enormous value that, in my opinion, has not been reflected in the marketplace.
Look at what we have been telling the marketplace: that we expect that at the closing of this merger (before the end of this year) to be producing 3,300 net barrels of oil equivalent per day. If you go and you look at some other companies like Synergy, it has about 8,000 barrels a day right now. That would put us at about 40% of where their production is when we close this merger. They have a PV10 of 1P reserves of about $500 million. We’ve already announced that at closing our PV10 of 1P reserves should be at $280 million — that’s more than 50% of Synergy’s. They are a $1.3 billion company. We are sitting here as a $20 million company.
So, I believe that provides to the marketplace a good opportunity for people to look at and say to themselves: “these guys have the management team, they have the technical team, and they have the assets and they’ve transformed the company with this merger to have access to much less expensive capital and credit facilities to drill more wells and develop shareholder value and production and cash flow in the company.” So, it really sets us in a position to take advantage of the recent move that we’ve made, the bold move that we’ve made and develop and grow this company into our strategic vision of being a billion-dollar enterprise.
WSA: Certainly and perhaps you can walk us through your background and experience Frank and talk a little bit about the management team there?
Frank Ingriselli: Sure. As I’ve mentioned, I have 35 years in this industry. I have a Law Degree and an MBA degree. I never practiced law at Texaco, but I had a wonderful career there. At the start of my career at Texaco I lived in China for most of 1982 and successfully negotiated the first successful foreign oil and gas venture in China (that Chevron today is benefitting from). Later I became President of Texaco International Operations, and also ran a Russian Joint venture company for Texaco and Exxon, and later I became President of Texaco Technology Ventures — just a wonderful career. But I retired when Chevron took over Texaco in 2001 and decided I wanted to take what I learned and the experience and the connections and the networking I developed, and go out to the marketplace and develop a company on my own with investors and see more of a direct result of the value driven and the value developed to come to the shareholders and myself, as in both our current company and in my prior company, I along with my family were one of the biggest cash investors
We’ve got Mike Peterson with over 10 years at Goldman Sachs and other oil & gas and energy CEO experience. We’ve got a technical and operating team in Houston that helped develop the Eagle Ford interest at Rosetta which helped turn that company into a multi-billion dollar enterprise, as well as other individuals on our team that have demonstrated that our company can deliver shareholder value and drill wells at a cost that is equal to or lower than what our competitors are doing. So, you are getting a seasoned team that has done it before and a team that is on the threshold of new technology in drilling and completing horizontal wells and squeezing the value (even at these low oil prices) because we are sitting in one of the best locations, the DJ Basin, which is one of the best plays left in the Shale industry that can deliver great rates of return at low oil prices.
So, I think we are positioned at the right time, and in the place to take advantage of the benefits that we are getting from this merger and the benefits as we see oil prices start to come back up, to grow our company and deliver on results. And I think it’s a great buy for investors right now because I believe our value is not reflected in the marketplace.
WSA: And what are some of the key value drivers that you wish investors better understood about the company?
Frank Ingriselli: I think what they need to see is the net acres we’ve got in one of the best basins out there. Go and look at some other companies what they’ve sold some of that acreage for, take our production rates and multiply them by the factors that companies are getting valued at; look at the net production we expect to receive post-merger, our PV10 of 1P reserves of $280 million, you’ll see that we are significantly undervalued when compared to some of our competitors.
We’ve noted publicly that we are in one of the best areas that can deliver 40% rates of return at current prices. A lot other shale plays around the country can’t deliver that kind of value. So, drivers for us are: we’ve got the team, we’ve got the assets and we are going to have access to capital. Our phones are ringing off the hook with people that want to do ventures and deals with us because they see we are bold and have great acreage. We take bold moves and we take smart accretive moves. We are going to take advantage of these better conditions that are taking place in the marketplace and use those to drive shareholder value in the company.
WSA: Great and once again joining us today is Frank Ingriselli, the CEO of Pacific Energy Development Corporation, otherwise known as PEDEVCO, which trades on the New York Stock Exchange, ticker symbol PED currently trading at $0.50 a share as mentioned market cap is around $20 million, and before we conclude here Frank to briefly recap some of your key points, why do you believe investors should consider the company a good investment opportunity today?
Frank Ingriselli: Sure. We have 27,000 net acres in the most prime area of the DJ Basin play, the fact that we plan to replace and payoff our senior debt of the company and have access to a 3.75% credit facility; we’ve told the marketplace we are going to get our production up to 3,300 barrels a day at merger close, and we plan to have $280 million of PV10 of our 1P reserves. We announced today that we are participating in the drilling of seven additional wells at 25% net interest in each well for the company. These wells are in the same area of some of our prior wells that had initial production rates of over 550 barrels of oil equivalent per day.
We are growing our company, we are doing it smartly, we are taking advantage of the efficiencies that we have, the merger that we’ve announced, and we are going to show that we are not a $20 million company, we are a company that with metrics that equal about 40% of some $billion competitors, but which value is not yet reflected in our stock price. So we’re primed to make a move and to deliver value.
WSA: Well, we certainly look forward to continue to track the company’s growth and report on your upcoming progress, and we would like to thank you for taking the time to join us today Frank and update our investor audience on PEDEVCO.
Frank Ingriselli: Great, well thank you Juan and thank you very much for the interview.